Private sector borrowing behind lift in growth rate

Markets were mixed on Friday night. US markets were softer as US Q4 GDP growth was revised down.

European markets were firmer as Greece was given an extension on its loan repayments and as Europe prepares for additional quantitative easing.

The Dow fell 0.4%, the FTSE100 was flat and the German Dax index rose 0.7%.

Interest Rates:

US interest rates edged lower on the weaker than expected US GDP results with ten year government bond yields falling back below 2.0%.

In Australia, ten year government bond yields moved a touch higher to 2.46% while three year yields were steady at 1.79%.

Foreign Exchange:

The US dollar index consolidated recent gains but was little changed over the weekend. The euro initially rose following some inflation data (see below) but then fell.

The AUD begins the week a touch firmer than its opening on Friday.

Commodities:

There was little movement in gold or copper prices despite economic news out of the US and China. The price of oil, however, lifted 3.3% as the US oil rig count fell to its lowest level since June 2011.

Australia:

Private sector credit grew by 0.6% in January, causing the annual growth rate to lift to a six year high of 6.2%.

Business credit grew 0.8% in January, its strongest monthly growth since June 2014.

Credit for investor housing remained firm also rising 0.8% in January to be up 10.1% over the year.

China:

China's central bank (PBoC) announced a 25 basis point cut in benchmark deposit and lending rates, taking the 1-year rates to 2.50% and 5.35% respectively.

That follows a 40 basis point cut in rates late last year, and may not be the last easing we see, as the PBoC's continues to re-assess the appropriate level of interest in light of lack-lustre economic growth (by historical standards) and low inflation.

The PBoC explained that the purpose of the cut was "to keep real interest rate levels accommodative to the changing fundamental trends in growth, inflation and employment" within the ongoing context of "prudent" monetary policy.

China's manufacturing PMI, released on Sunday, showed a slight improvement from 49.8 to 49.9 and beat the median estimate of 49.7. The non-manufacturing PMI also rose slightly, from 53.7 to 53.9.

Europe:

Over the weekend, the German parliament agreed to extend financial aid to Greece for a further four months.

The agreement came as Greece released its planned reforms. Compromises were made by both Greece and its European creditors. The agreement lifted expectations that Greece would remain in the Eurozone.

Eurozone preliminary inflation data for February from German and Italy was higher than expected. Germany's annual rate of inflation was 0.1% having slipped to negative 0.4% in January.

Deflationary pressures are easing but the market expects that ECB will downgrade its inflation forecasts next week. Italy's annual inflation rate was also 0.1% in February.

New Zealand:

No major data released.

United Kingdom:

UK GDP data was released late last week and showed that the UK economy grew 2.7% over the year to December. This was the strongest pace of growth in seven years.

United States:

US GDP for Q4 was 2.2% annualised, beating estimates of 2.0% but slowing from the initial Q4 estimate of 2.6%. Consumption growth was firm, despite low oil prices, although business investment slowed.

The Chicago PMI fell below 50 in February, to 45.8 from 59.4. It was the lowest reading since 2009.

US consumer confidence was revised higher to 95.4 from 93.6. The two-year upward trend has been re-established, and this was despite higher gasoline prices in February.